Basis Convergence and Long Memory in Volatility When Dynamic Hedging with Futures

Jonathan Dark

Journal of Financial and Quantitative Analysis, 2007, vol. 42, issue 4, 1021-1040

Abstract: When market returns follow a long memory volatility process, standard approaches to estimating dynamic minimum variance hedge ratios (MVHRs) are misspecified. Simulation results and an application to the S&P 500 index document the magnitude of the misspecification that results from failure to account for basis convergence and long memory in volatility. These results have important implications for the estimation of MVHRs in the S&P 500 example and other markets as well.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:42:y:2007:i:04:p:1021-1040_00

Access Statistics for this article

More articles in Journal of Financial and Quantitative Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().